Dear subscribers,
Even the fiercest fiat detractors among us likely feel we’ve burned a few too many dollars this year. As we look forward and see the markets reverting to a less efficient, arguably more attractive state, it is hard to work up an appetite to get back in the game. Especially` if part of our funds is perpetually stuck in the pit of the FTX collapse.
Nevertheless, if you are reading this, you likely see opportunities in this whole mess, and so do we.
Thank you for reading the Uncharted. Let’s dig in!
“A smooth sea never made a skilled sailor.”
- Franklin D. Roosevelt
At a glance
State of the System
Bitcoin is currently positioned in the bearish quadrant at near-maximum risk with slow momentum toward a bullish transition.
The macro environment
The current macroeconomic environment is fuelled by a seemingly more lenient Jerome Powell. Investors are currently expecting a 77% chance for a 50 basis point rate hike and only a 23% for a 75 basis point hike for December.
Markets reacted to China showing unusual signs of revolt, as its zero-COVID policy takes a toll on the population.
Crypto’s Course
Bitcoin price stabilized below the $17k mark and reached a new three-week high of $17’300. However, BTC’s and ETH’s performance in comparison to the US equities advance has been weak.
Altcoins have shown relative resilience vs. bitcoin in this crash, as Swissblock’a Altcoin Cycle Signal and further indicators show.
We look at one project that is in an interesting position post FTX collapse.
Outlook
Bitcoin’s price level is unsustainably low, while further shocks to the downside are more likely than ever. More below!
State of the System
As the State of the System (figure 1) shows, the last two weeks have mainly meant further hovering of bitcoin deep in the bearish quadrant. The negative trend has slowed, as bitcoin is resistant to falling below the support at $16k (as explored in Uncharted #28), yet the risk in the system has only been exacerbated.
Figure 1: Bitcoin moves deeper into the bearish quadrant
This week BlockFi declared bankruptcy, underlining that the contagion effects of FTX’s collapse are just starting. The extent of this contagion is uncertain, which is potentially a fundamental explanation for the rise in tail risk seen in Swissblock Technologies’ market models. Fundamentally: While bitcoin may be hitting a point of seller exhaustion and a potential bottom around the current $16k level (figure 2), further bankruptcies and liquidity crunches by major centralized players may well lead to further, massive liquidations that could push the price even lower. Here it must be said: Strong on-chain and off-chain volumes set the bar high for a further push down, along with other factors that provide potential upward momentum, which we will see in the sections below.
Figure 2: Price seems to be holding firm despite the onslaught of bad news
Swissblock’s Bitcoin Risk Signal (figure 3) confirms this notion of high tail risk in case of further FTX contagion by decisively sticking to the maximum mark of 100 for a longer than usual period and slightly retracting today towards 91.
Figure 3: Bitcoin Risk Signal at the maximum
As is common in times of elevated risk, we see Swissblock’s Altcoin Cycle Signal hover in Bitcoin Season (figure 4). Figure 4, however, is also where things get interesting: The hovering within Bitcoin Season seen since October is by no means common, as we can see from past cycles when the whole crypto market falls in line behind bitcoin.
Figure 4: A wavering Bitcoin Season continues
In contrast to the LUNA market crash in May, where bitcoin dominance spiked to near-50 %, the current crash has not led to any meaningful changes in this metric (figure 5). This means that altcoins have shown resilience to one of the biggest exchanges collapsing.
Figure 5: Bitcoin dominance has not spiked in the current crisis
It seems that at the current depressed price levels something is in the works. In the Crypto’s Course section we will look at an individual project that may explain why strong altcoins may be attractively positioned and look at evidence of an (attractively) less efficient crypto market. Let’s explore further.
Enjoying the Uncharted so far?
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The macro environment
It was only a month ago when all that seemed to matter for crypto price development was the next FOMC meeting or the next inflation number.
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